Bank of America has reinstated coverage on ServiceNow (NOW.US) with a Buy rating and a $130 price target. Analysts believe that while artificial intelligence (AI) is reshaping the software industry, ServiceNow is positioned to benefit from the AI wave rather than be displaced by it.
Analyst Tal Liani noted in a client report, "Although AI is transforming the software landscape, we expect ServiceNow to gain from new AI solutions instead of being replaced. The company has a strong starting point, with its deeply embedded and critical role in enterprise workflows, serving as a system for managing, routing, approving, and auditing activities across organizations. Replacing its system is costly and complex. Its leadership could allow the 'agentic AI' cycle to become a new growth driver. We believe ServiceNow's depth and breadth in workflow systems will enable it to benefit significantly from deploying autonomous intelligent agents across IT, employee, and customer workflows."
The analyst further pointed out that ServiceNow's revenue growth is expected to remain between 18% and 22% from now through 2028, with free cash flow margins projected to stay between 35% and 37%, driven by platform expansion, enhanced budget capture, and AI commercialization.
"Notably, the company's current remaining performance obligation (cRPO) growth has exceeded 20% for five consecutive quarters, highlighting sustained strong demand and the platform's importance," the analyst added. "Management anticipates operating margins and free cash flow margins will each improve by approximately 100 basis points by 2027, achieving operating leverage expansion even amid ongoing AI investments. Currently, the stock is valued at about 14 times the expected 2027 enterprise value to free cash flow (EV/FCF), which we find attractive given the company's faster growth and stronger profitability compared to peers."
Last month, ServiceNow reported better-than-expected first-quarter results and raised its full-year guidance. However, the company noted that conflict in the Middle East impacted subscription revenue growth.
For Q1, ServiceNow's revenue increased 22% year-over-year to $3.77 billion, slightly above the average analyst estimate of $3.74 billion. Subscription revenue grew 22% to $3.671 billion, while professional services and other revenue rose 18.5% to $99 million. Net income was $469 million, with adjusted earnings per share of $0.97, edging past the average estimate of $0.96.
ServiceNow stated that Q1 subscription revenue growth was "negatively impacted by approximately 75 basis points due to delays in signing several large on-premises deals resulting from ongoing conflict in the Middle East." Nevertheless, the company raised its fiscal 2026 subscription revenue guidance to $15.74–$15.78 billion from the prior range of $15.53–$15.57 billion.
For Q2, ServiceNow guided subscription revenue to $3.815–$3.820 billion, representing about 22.5% year-over-year growth, above the average analyst estimate of $3.75 billion. The company's Q1 current remaining performance obligation (cRPO) was $12.64 billion, surpassing the market expectation of $12.56 billion. ServiceNow completed 16 new deals with annual contract value exceeding $5 million, a nearly 80% increase year-over-year.
In AI business developments, the number of customers with annual ACV over $1 million for its AI assistant product Now Assist grew more than 130% year-over-year. Management views this as a key indicator of accelerating AI monetization on the platform.
ServiceNow Chairman and CEO Bill McDermott stated in the earnings release that customers are adopting the company's platform as the "AI command tower for business transformation," emphasizing that AI business growth has "far exceeded the company's own expectations."
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